Should you consider
financing closing costs, escrow
reserves, or other cash needed at
closing?
If you've built up some equity in
your home, when you refinance, you
may be able to "cash out" some of
that equity to pay off credit cards
or other revolving debt, improve
your home, help pay for college, or
anything else you can think of. The
same is true of refinancing costs:
If you have enough equity in your
home, you may be able to roll some
of the cash due at closing into your
loan.
Some of the "cash needed to close"
as it's sometimes called includes
settlement costs and fees, prepaid
interest, escrow reserves, state or
local government charges, or even
extra funds needed to pay off your
existing mortgage. Some or all of
those costs can sometimes be
financed as part of your new
mortgage loan.
But you have to be careful. It's not
always the case that you can borrow
up to 100 percent of your home's
value. Many loan programs are based
on what's called a "loan-to-value"
ratio. You may qualify for a very
advantageous refinanced mortgage if
you borrow no more than 80 percent
of your home's value, but may not
qualify for the same terms if you
borrow 90 percent. We can help you
qualify for refinance loan programs
for as much as 95 percent of your
home's value in most cases, but the
lower your loan-to-value ratio (that
is, the less you borrow), the better
terms you'll generally qualify for.
The bottom line is that in many
cases you can reduce your up-front
costs for refinancing your mortgage
in exchange for higher monthly
payments for the life of the loan.
But whether, and to what extent, you
can do this depends on the value of
your home and the amount of your new
mortgage, and what options you
decide are best for you.
If you've had your current mortgage
for a few years, chances are you've
built up enough equity to finance
cash needed to close and still have
a smaller loan balance than your
original -- and a balance that will
qualify you for a favorable mortgage
program tied to your loan-to-value
ratio. We can help you decide!
Many people find that it's
advantageous to pay the cash needed
at closing from checking, savings or
money market accounts or from other
assets. This is because the less you
borrow on the new refinanced loan,
the lower your monthly payment will
be. But we'll work with you to see
if there is an advantageous
refinancing program for you based on
your ability and willingness to pay
closing costs and other fees and the
amount you wish to borrow.
We want to make the best loan for
you, work for you!
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